This contract tip is about not adding your own version of statutory terms to your contracts.
Let me explain why this is such a bad idea.
Some time back, I reviewed a counterparty’s form of non-disclosure agreement. The contract was governed by California law. The counterparty included in its form its own definition of a trade secret. I checked, and it was worded differently from the California statutory definition.
This approach has disaster written all over it.
Let’s say I left that provision in, and there was a dispute over a party’s disclosure of the other party’s trade secrets. What definition of trade secret would a court or arbitrator use in evaluating the case? The version defined in the contract or the version that would apply under California law? A combination of both?
Your guess is as good as mine.
Redefining statutory terms creates confusion in your contracts. Let the statute’s definition control. If you want to clarify that approach in the contract, define the term as the meaning under applicable law.
What other advice would you add about dealing with contracts that have terms defined by statutes?
